Building blocks - Volume

The next building block I would like to talk about is Volume. I will continue to develop the idea based on  the same example used in the article: Building blocks - Price. If you did not read it, I suggest you do before continuing.

A quick recap: the example suggested that a buyer an a seller concluded a deal of 1 Ipad at a price of U$325. We also have stated that the Ipad´s value is U$400 (determined by Apple) and it was not changed by this deal because there was not enough volume and there was not enough time.

The questions I ask myself now are: Why value was not changed and would is necessary for it to change? To answer this question, we will have to make some assumptions.

Let´s suppose that before that deal was made, Apple had only sold one Ipad for U$400 and we stop time. Now, you decide to buy an Ipad, how much would you expect to pay? I believe the answer to that is "something between U$325 and U$400". Those are the references you would have after 2 deals.

Starting the clock again, but  this time, the seller is not an Apple as one would expect. It is our Ipad Dealer at Apple Market Place who has the inventory to sell. His price is U$325 and he sells 1,000,000 Ipad for this price. Now Apple comes into the market with the same Ipad for U$400. I believe Apple would have a hard time trying to sell Ipads in this scenario because the perception of value is U$325 and you would have to be a sucker to pay U$400 instead of U$325. For value to shift back to U$400, the dealer must be out of inventory and Apple has make a lot of deals with the desired price to change the perceived value imposed by the dealer.

We now understand how volume affects price and this is what you should take from this. In order for the value the change, a significant amount of volume must be made at a single price. The more volume has happened at a price, the greater the weight it plays in determine the value.